Trading Doesn't Need to be Complicated

Friday, 24 January 2014

Today I want to touch on "how to simplify your technical analysis". Trading doesn't need to be extremely complicated! We want to buy at levels where the buy orders reside and sell at levels where the sell orders reside. So our only job as a professional trader becomes locating these levels to obtain the highest probability trading opportunities. Using pure price action we are able to do exactly that using very definitive methods to determine where the "unfilled orders" are sitting on the exchange for any given financial market.

Before continuing, let me clear the air by saying that this is by no means the only way to make money in the markets and as long as anyone is making money that makes them a successful trader with no need for change. Having said that let's look at the markets just like anything else in life (example below).

If you have a favorite clothing store (let's call it Nordstrom) and they decide to have a 50% off sale will you wait for a lot of people to go and buy the clothes or will you want to be the first in line to be sure you get what you want in your size??? Or another example would be "Black Friday", people literally fight to get to the front of the line because they want to be sure to get the item they desire. In either case waiting would mean you may not get the item you hope to find because it may have already been purchased by another. So if we apply that exact same logic to the financial markets would we want to wait for many traders to purchase at any given level before placing our order OR would we want to be the first there to be sure we get filled?

You got it, we want to be the first one there. Does it sound too good to be true, too simple? That's because it is, there is no magical "indicator" that tells us where nor when to buy or sell with 100% accuracy. It takes extremely hard work and dedication to become a successful trader and there is no "next best trading system". When we say we want to be the first one there does that mean to place orders anywhere price hasn't reached? Absolutely Not!

Using Historical price data we have all the information we need to make an educated decision as to the value of the market. If we determine the value of the market we now know if we wish to buy or sell. After that is determined we can simply begin locating our levels of "unfilled orders" in accordance with the direction we wish to go. When looking for "unfilled orders" there is a very basic rule of thumb; have we pulled back into that area before? If so we know for a fact the orders were diminished to that exact price point (pivot high/low) and therefore this is of no interest to us. The orders must be above or below the pull backs which is where we look to take action.

In the images below see yesterday's trades, we will use these as examples.

Image 1: Shorting 6J after a large rally/uptrend. Price defined an area of "sell orders" giving us the opportunity to take action at 9700 with 10 contracts while removing 8 just before the next opposing area of "buy orders". The final 2 remained for the possibility of further decline after protecting our investment with a stop order.

Image 2: Buying ES after a large decline/downtrend. Price defined an area of "buy orders" giving us the opportunity to take action at 1815.75. We used a PFA confirmation entry and removed full position at the next opposing area of "sell orders".

In conclusion we want to approach the markets the same way as everything else we buy and sell. Please note that nothing worth knowing is easy and this is no different but trading doesn't need to be complicated. While it may sound easy, it isn't. But it can be learned with hard work and dedication! You can join us in our Free Training Events by simply registering on the right hand column of this page. There are no obligations at all. I look forward to seeing you in the next event.

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CFTC RULE 4.41 HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

Trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing one's financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results. All Software provided or purchased is strictly for educational purposes only. Any presentation (live or recorded) is for educational purposes only and the opinions expressed are those of the presenter only. Testimonials may not be representative of the experience of other clients or customers and is not a guarantee of future performance or success.